Key Take Aways from Chicago’s February 2023 Mastermind Group Meeting!
- Corey Walz, Walz Capital, LLC: Seeing a lot of less sophisticated money leaving on the buy side which is advantageous for their group. New opportunities are freeing up particularly in the secondary markets (e.g., just outside Indianapolis and just outside other big cities).
- Alissa Adler, Colliers International: In the last 60-days, their client base has transitioned significantly from just representing investors owning assets to lenders soon-to-be-owning assets. Unfortunately, a lot of people are not excited about coming to Chicago and it is expected to be pretty ugly for the next 24-months.
- Hart Passman, Elrod Friedman – Hart shared that there is proposed legislation in the state of Illinois for a pilot program to support projects like the Arlington Race Course site for the Chicago Bears (but other mega projects as well). The program really only applies to a limited number of projects, but the unique feature is the program will cap the actual property taxes at an agreed upon number.
- Rick Rembusch, OYO Mountainia UK: The hotel market has been outperforming in the larger markets (Las Vegas, New York) since the pandemic which is good news. Austin is also growing rapidly. The smaller markets are still struggling but, again, improving.
- Matt Berry, The John Buck Company: 2022 was pretty challenged. They were holding some multi-family assets but watched valuations slide in the wrong direction the last eleven months. Q4 of this year will be interesting – not sure the landscape will improve much. They are exploring debt products and other new equity sources to get through this phase and challenges.
- Lauren Zangl, ECS Midwest, LLC: Not a lot going on from the environment side. Phase I standards will be fully effective on February 13. The changes are not huge, but you will see more consistency between companies on Phase 1 work. Other areas that are bubbling are the emergent contamination issues and in the Midwest, not seeing a lot of traction on the due diligence side. Phase 2 work has been increasing, but their natural resources side has been blowing up due to access to federal money. The long eared bat is becoming an endangered species; so forested land will need to go through a process before it can be cleared.
- Melanie Wang, Pearlmark: On the debt side, seeing a ton of interest in mez debt and seeing a lot of demand for senior debt. Also seeing equity funds put on hold as not sure what to do in that market.
- Jesper Dalskov, Stantec Architecture: Stantec is a 24,000 employee global firm and do work all over the country. Locally, they have seen a lot of interest in the adaptive reuse space (especially in the Loop), e.g., office to residential, hospitality conversion, etc. Some are very suitable and others have been extremely challenging. Downtown Denver is underutilized and not a lot of residential so will probably see some activity there too. The West Coast has a housing problem, but their underutilized downtown area can present some conversion opportunities.
- Paul Einum: Paul shared that foreign investors are afraid of Chicago and he is concerned that the negativity about Chicago is prevalent in other parts of the country. For the last half of 2021 and first half of 2022, he worked on trying to keep lenders in the game and investors at bay. Saw value hits of 20-30% across the board (if not more in some cases). Concerned Chicago is being superseded by markets that we didn’t think historically were a threat but they are now.
- Erin Sullivan, Pearlmark: They are in the process of closing on their first US Equity Fund which will be multi-family, office and small development. They are currently trying to find the first deal for the fund. The opportunities they are seeing are really just people who have to exit their transactions (e.g., merchant builders who need to get out).
- Hunter Cannon, Colliers International: Consumer confidence is up despite recession worries and rising interest rates. People continue to migrate to the southwest. The biggest problem is retail expansion and Chicago is at a historical low for vacancies. Still seeing a push for the ‘store-in-store’ but not growing at a rapid pace.
- Christine Clavenna, Capitol Construction Services, Inc.: Their firm does a lot of retail and restaurant work along with some office space too. The good news is they are remodeling a few restaurants in the city. Still doing a lot of tenant improvements in the suburbs and hope it follows into Chicago. More and more restaurants are re-opening e-open they want to do some redesign work to make it stand out. Restaurants are still having employment challenges whether in the city or the suburbs.
- Tim Carroll, Busey: The good news is they are still lending. Closed two large deals at the end of the year ($52M and $22M). They had a deal last year in Chinatown (110 units) that was moving along but they backed out because of their concern with the economy. However, this week, they contacted their group, and they want to restart the project.
- Dawn Cardin, CIBC Private Wealth US: Seeing a lot of individuals on the wealth side making investments in real estate. She sees them holding onto their assets and making sure their liquidity is favorable when the time comes. In the last 3-4 weeks, received a request for an affordable housing deal. On the CRE side, they are more concerned with property type and allocation of capacity on the property. People with wealth will flood the market – it is just a matter of time.
- Craig Coupe, JLL: The real challenge is lack of transparency in the market. People don’t know what is happening with their landlord or their building. The market is over brokered but is also an opportunity where brokers can figure out how to get their deals done. The best properties and landlords will succeed. We really need to see more datapoints in the market so investors feel they are getting a good deal. He also stated that he feels the city needs to come up with ways to create a more dynamic eco system to support the corporate real estate market (e.g., create incentives for small businesses surrounding the large corporate buildings).
- Ginna Ryan, Mauge: They are currently working on three restaurants (who have experienced operators); two are new properties in the civic opera building and another at 70 West Madison. They work closely with the interior people and the developers to help the client not only with marketing but their strategic direction too. Working on a few projects in Northwest Indiana (Hammond, IN is a hot area). Also seeing properties are multi-generational. Lakeshore East was multi-generational, and she believes we will continue to see more of this. Also seeing merchant developers create a concept and replicating it across multiple markets.
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